| Thu 15 Nov 2007, 11:30 | | HCI - Hosken Consolidated Investments - Unaudited |
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HCI
HCI
HCI - Hosken Consolidated Investments - Unaudited Group Interim Results For
The Six Months Ended 30 September 2007
Hosken Consolidated Investments Limited
Incorporated in the Republic of South Africa
Registration number: 1973/007111/06
Share code: HCI & ISIN: ZAE000003257
"HCI" or "the company" or "the group"
Unaudited group interim results for the six months ended 30 September 2007
- 53% increase in profit attributable to HCI shareholders
- 20% increase in headline profit for the period
- 19% increase in headline earnings per share
ABRIDGED CONSOLIDATED INCOME STATEMENT
30 September 30 September 31 March
2007 2006 2007
% R`000 R`000 R`000
Change Unaudited Unaudited Audited
Revenue 2 537 660 1 191 514 3 150 228
Net gaming win 1 688 668 35 557 1 166 155
Net funding income 20 791 35 196 66 477
Group revenue 237 4 247 119 1 262 267 4 382 860
Other income 44 188 - 3 864
Income 4 291 307 1 262 267 4 386 724
Expenses (2 893 122) (927 304) (3 089 004)
EBIDTA 317 1 398 185 334 963 1 297 720
Depreciation and
amortisation (237 695) (41 817) (212 442)
Operating profit 1 160 490 293 146 1 085 278
Investment income 32 030 71 727 138 628
Finance costs (138 152) (69 360) (175 662)
Share of profits
of associates and
joint ventures 118 820 118 537 215 407
Negative goodwill
released 2 836 - -
Investment surplus 56 391 51 334 57 647
Fair value
adjustments of
investment
properties - - 568
Fair value
adjustments of
investments - 354 444
Impairment of
goodwill and
investments - (2 021) (3 112)
Profit before
taxation 166 1 232 415 463 717 1 319 198
Taxation (390 408) (100 934) (370 079)
Profit for the
year from
continuing
operations 132 842 007 362 783 949 119
Discontinued
operations (3 504) - 3 630
Profit for the period 131 838 503 362 783 952 749
Attributable to:
Equity holders of
the parent 53 423 328 276 998 574 737
Minority interest 384 415 175 85 785 378 012
838 503 362 783 952 749
Reconciliation of
headline earnings
Earnings
attributable to
equity holders
of the parent 423 328 276 998 574 737
Investment surplus (56 348) (51 334) (57 749)
Impairment of
goodwill and
investments - 2 021 3 112
Revaluation of
investment
properties - - 777
Negative goodwill
on acquisition of
subsidiary (2 836) - -
IAS 16 gains on
the disposal of
plant and equipment (38 308) - (3 700)
Re-measurements
included in
equity-accounted
earnings of
associates (72 532) (1 358) (14 720)
Total tax effects
of adjustments 3 200 10 747 8 669
Total minority
interest of
adjustments 27 524 - 101
Headline earnings 20 284 028 237 074 511 227
Deferred tax in
respect of losses - - (33 421)
Deferred tax in
respect of STC
credits 14 335 11 355 32 515
Adjusted headline
profit 20 298 363 248 429 510 321
Earnings per share
(cents)
- Basic 52 340,34 223,74 464,66
- Headline 19 228,35 191,49 413,31
- Adjusted headline 19 239,87 200,66 412,58
Weighted average
number of
shares in issue
(`000) 124 384 123 806 123 691
Actual number of
share in issue at
end of
period (net of
treasury shares)
(`000) 123 954 123 211 123 896
Diluted earnings
per share (cents)
- Basic 51 332,42 220,80 457,42
- Headline 18 223,03 188,98 406,88
- Adjusted headline 18 234,29 198,03 406,15
Weighted average
number of
shares in issue
(`000) 127 349 125 450 125 647
ABRIDGED CONSOLIDATED BALANCE SHEET
30 September 30 September 31 March
2007 2006 2007
R`000 R`000 R`000
Unaudited Unaudited Audited
ASSETS
Non-current assets 9 640 725 7 712 093 11 806 828
Property, plant and equipment 5 017 072 838 113 4 847 240
Investment properties 198 302 153 955 198 299
Goodwill 1 022 882 91 712 908 642
Interest in associates and
joint ventures 640 028 1 273 129 592 460
Investments 192 659 120 320 226 584
Intangibles 305 901 3 941 276 719
Deferred taxation 283 919 295 213 325 813
Financial assets 1 626 373 4 636 740 3 986 861
Operating lease equalisation
asset 4 988 4 300 5 000
Long-term receivables 348 601 294 670 439 210
Current assets 4 902 018 3 602 041 3 616 500
Other 1 848 615 1 265 163 1 385 335
Financial assets 2 269 653 1 711 495 1 489 062
Bank balances and deposits 783 750 625 383 742 103
Total assets 14 542 743 11 314 134 15 423 328
EQUITY AND LIABILITIES
Equity 4 983 684 2 993 833 4 349 888
Equity attributable to equity
holders
of the parent 2 425 036 2 029 790 2 119 671
Minority interest 2 558 648 964 043 2 230 217
Non-current liabilities 4 322 255 5 649 386 6 713 453
Financial liabilities 1 652 953 4 674 666 4 044 356
Deferred taxation 121 435 51 131 101 373
Long-term borrowings 2 190 128 900 989 1 995 139
Operating lease equalisation
liability 273 679 22 600 266 457
Other 84 060 - 306 128
Current liabilities 5 236 804 2 670 915 4 359 987
Other 2 972 962 958 838 2 874 712
Financial liabilities 2 263 842 1 712 077 1 485 275
Total equity and liabilities 14 542 743 11 314 134 15 423 328
Net asset value carrying per
share (cents) 1 956 1 638 1 711
ABRIDGED CONSOLIDATED CASH FLOW STATEMENT
30 September 30 September 31 March
2007 2006 2007
R`000 R`000 R`000
Unaudited Unaudited Audited
Cash flows from operating
activities 861 620 214 595 726 362
Cash flows from investing
activities (456 255) (592 848) (604 839)
Cash flows from financing
activities (454 110) 227 707 (386 199)
Decrease in cash and cash
equivalents (48 745) (150 546) (264 676)
Cash and cash equivalents
At beginning of period 710 445 768 755 -
On acquisition/disposal of
subsidiaries 66 538 1 242 206 366
At end of period 728 238 619 451 (58 310)
Bank balances and deposits 783 750 625 383 742 103
Bank overdrafts (55 512) (5 932 (31 658)
Cash and cash equivalents 728 238 619 451 710 445
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
6 months 6 months 12 months
ended ended ended
30 September 30 September 31 March
2007 2006 2007
R`000 R`000 R`000
Unaudited Unaudited Audited
Opening balance 4 349 888 2 586 291 2 586 291
Net profit 423 328 276 998 574 737
Ordinary dividends paid (62 491) - -
Shares issued 36 000 34 500 66 950
Shares repurchased (67 000) (11 700) (11 700)
Treasury shares acquired by
subsidiary (6 066) (21 306) (20 775)
Minorities` share of profits
and reserves 395 251 85 785 394 132
Changes in holding 28 558 49 896 1 233 774
Distributions to minorities (95 378) (6 500) (144 466)
Revaluation reserve (6 150) - 15 784
Share-based payment reserve 530 - 3
Cash flow hedging reserve - - 111
Currency translation differences (12 786) (131) 9 144
Share of equity-accounted
pre-acquisition profit of
subsidiary - - (354 097)
Closing balance 4 983 684 2 993 833 4 349 888
SEGMENT ANALYSIS
30 September 30 September 31 March
2007 2006 2007
R`000 R`000 R`000
Group revenue
Media and broadcasting 544 555 401 503 903 252
Financial services 76 012 61 197 199 447
Limited payout gaming 70 368 41 757 121 325
Casino gaming 1 890 150 - 1 198 984
Hotels 778 300 - 478 798
Information technology 104 895 58 340 120 799
Transport 392 876 372 198 738 809
Industrial 235 482 261 450 442 400
Energy 81 731 - 44 000
Exhibition and properties 72 750 63 000 118 000
Other - 2 822 17 046
Total turnover 4 247 119 1 262 267 4 382 860
Profit before tax
Media and broadcasting 225 171 155 124 346 871
Financial services 14 078 21 939 14 492
Limited payout gaming 10 945 3 503 8 000
Casino gaming 614 150 67 587** 575 778*
Hotels 163 950 22 530** 111 563*
Information technology 26 671 16 471 28 631
Transport 58 812 56 747 120 911
Industrial 13 592 29 748 53 718
Food and beverage 83 905 14 433 28 796
Exhibition and properties 26 351 18 000 36 000
Energy (43 644) - (66 000)
Other*** 38 434 57 635 60 438
Total group profit before tax 1 232 415 463 717 1 319 198
* Includes the group`s equity-accounted share of after tax profits from TIH
for eight months and the pre-tax profit of TIH before minority for four months
** Includes the group`s equity-accounted share of after tax profits from TIH
for six months
*** Includes investment surplus
COMMENTARY
BASIS OF PREPARATION AND ACCOUNTING POLICIES
The results for the period ended 30 September 2007 have been prepared in
accordance with International Financial Reporting Standards ("IFRS"),
specifically IAS 34: Interim Financial Reporting, and comply with the
requirements of the South African Companies Act, 1973 and the Listings
Requirements of the JSE Limited. The accounting policies of the group are
consistent with those applied for the year ended 31 March 2007.
OVERVIEW OF RESULTS
Group results
Increases in revenue, EBITDA and operating profits in the group`s media and
gaming subsidiaries, together with the effects of the recent acquisitions in
these sectors have resulted in increases in both headline profits (up 20%) and
adjusted headline profits (up 20%) for the period when compared to the six
months ended 30 September 2006 ("the prior comparative period").
As reflected in the group`s results for the year ended 31 March 2007 ("March
2007 results"), the group acquired control of the Tsogo Sun Group with effect
from 1 December 2006. Accordingly the six months ending 30 September 2007 is
the first full reporting period where Tsogo Sun Group is consolidated. The
group`s share of the results of the Tsogo Sun Group for the prior comparative
period were equity accounted and were included in the share of profits of
associate companies.
As stated in the March 2007 results, the business combination was accounted
for using the provisional figures provided by the Tsogo Sun Group - an
alternative that is allowed in terms of IFRS 3. IFRS 3 allows a company to
update these provisional figures within 12 months of the combination date. The
detailed assessment of Tsogo`s assets, liabilities and contingent liabilities
is in the process of being completed and the required adjustment, if any, will
be made in due course and reflected in the year-end results.
The consolidation of the results of the Tsogo Sun Group has resulted in
significant increases in many of the disclosable line items in the group
income statement. As a result all of the line items in the income statement up
to and including profit for the period are not comparable with the prior
comparative period. The profit attributable to HCI shareholders (up 52%),
headline profit (up 20%) and adjusted headline profit (up 20%) are comparable
with that of the prior comparative period. The basic earnings per share,
headline earnings per share and adjusted headline earnings per share are also
comparable with that of the prior comparative period.
Basic earnings per share amounted to 340 cents for the period. This represents
a 52% increase when compared to the prior comparable period. This increase is
due to the continued improved performance of the group`s major investments and
the group`s share of profits on the disposal of Johnson Crane Hire and the
sale of the Clover Ultramel business by Clover Industries Limited included in
investment surpluses and share of profits of associates respectively.
Headline earnings increased during the period to R284 million from R237
million in the prior comparative period.
Adjusted headline earnings, which your directors feel are more reflective of
the sustainable earnings of the group, increased by 20% from R248 million to
R298 million. Adjusted headline earnings exclude all abnormal profits and
losses and the effects of net deferred tax assets raised or expensed in
respect of unused tax losses and available STC credits. Adjusted headline
earnings per share increased by 19% from 200 cents to 240 cents. This increase
is mainly due to the continued improved overall performance of the group`s
major investments during the year.
Group balance sheet
The group balance sheet reflects significant increases in non-current assets,
non-current liabilities and minority interest when compared to the prior
comparative period. These increases are mainly due to the consolidation of the
Tsogo Sun Group with effect from 1 December 2006. The balance sheets at 30
September 2007 and 31 March 2007 are thus not comparable with the prior
comparative period balance sheet.
Non-current liabilities at 30 September 2007 comprise non-recourse debt that
is presently ringfenced in operating subsidiaries (R1 628 million) and
recourse debt at the HCI corporate level (R562 million).
During the period under review shareholders approved the specific repurchase
of 1 million HCI shares from the Fabcos Group for a total consideration of
R67 million.
INVESTMENTS
Media and broadcasting
Sabido Investments (Pty) Limited ("Sabido") - 63% interest
The group`s primary media and broadcasting investments are housed in Sabido.
Sabido`s major investments include the free to air television channel e.tv,
Gauteng-based radio station Yfm, Dreamworld Film Studios, satellite television
licence holder e.sat tv and mobile solutions and innovations provider
ViaMedia.
The revenue from the media and broadcasting segment continued to grow in line
with expectations during the period under review. More importantly, while
revenue increased 36% from R401 million to R544 million, profit before tax
increased by 45% to R225 million. This was up from R155 million in the prior
comparable period and demonstrated management`s focus on containing costs
while leveraging the inherent advantages of the media business model.
e.tv has consolidated its position as the most-watched English-medium
television channel in South Africa and the second-largest channel overall.
The business remains committed to a pan-African media strategy but a cautious
approach is required. Expansion plans remain focused on Sabido becoming a
multi-channel, multi-platform business and a television content aggregator.
ViaMedia is now integrated in the group and plans to increase its product
offering through synergies with the group and other new opportunities.
During the period under review, HCI restructured its interest in Yfm by
transferring its 77,5% interest to Sabido for a consideration of R146 million,
subject to certain regulatory approvals. Sabido has also acquired the
remaining minorities in Yfm on the same terms resulting in Sabido now owning
100% of Yfm.
Yfm is not performing to potential but the integration into Sabido should
enable the station to regain market share.
e.sat tv`s application for a satellite pay television license was successful.
The group is currently evaluating opportunities in the sector with a view to
launching new channels in 2008, without exposing itself to excessive financial
and operational risk.
Gaming, hotels and leisure
Vukani Gaming Corporation (Pty) Limited ("Vukani") - 100% interest
Vukani, the group`s limited payout machine operator, increased its installed
machine base to 1 775 machines during the period. The roll-out remains behind
target but is improving following improved submission processes, management
changes and improved gaming board interactions. Significantly, the speed of
the KwaZulu-Natal roll-out will be improved after the legal impasse relating
to liquor license conditions was resolved.
A bid was submitted for a route operator license in the Free State. Further,
the long awaiting RFP for the Gauteng province was released, requiring
submissions to be made at the end of February 2008. The RFP has indicated that
five licenses will be granted in the province.
EBITDA increased by 145% compared to the prior comparable period. Gross gaming
revenue per machine has been stable through the period under review.
Tsogo Investment Holding Company (Pty) Limited ("TIH") - 65,5% effective
interest The group`s effective interest now amounts to 65,5% and the period
under review will be the first full reporting period where the results of
Tsogo Sun are consolidated in the HCI results. Consolidated EBITDAR (before
rentals) for Tsogo Sun Group for the six months amounted to R1 001 million, up
20% when compared to the prior period. Net interest-bearing debt reduced to
R838 million since year-end. Tsogo Sun Gaming increased revenues by 19% and
EBITDA by 21% when compared to the prior period. Southern Sun Hotels increased
revenues by 16% and EBITDA by 20%.
The gaming market is still growing at rates significantly above CPIX but it is
expected that the current economic conditions will reduce future gaming growth
rates. Hotel occupancies remain at a record high for the group and it is
expected that the division will gain from further expected rate growth in the
market.
The SunCoast Casino`s dispute with the Ethekweni Municipality has been
settled.
It is hoped that the R150 million advanced to the Municipality will be
committed to the upgrade of the precinct which will enhance the overall
appearance of the property and reduce current parking and logistical
constraints.
As reported previously the Mpumalanga Gaming Board did not approve HCI`s
application to increase its shareholding in Tsogo Sun and HCI has taken that
decision on review, the outcome of which is still pending. The group also made
a bid to acquire other minority interests in TIH but has been unsuccessful to
date in this regard.
Johnnic Holdings Limited ("Johnnic") - 53% interest
Johnnic`s reported profit after tax for the period amounted to R70 million of
which the majority relates to Johnnic`s gaming interests. Johnnic continued to
report losses in its energy division whilst the property and exhibitions
division has performed well in the current reporting period when compared to
the prior comparable period. The segmental analysis provides further
information on the divisional performance of the above Johnnic sectors which
have been fully consolidated into the group.
Johnnic has successfully concluded a settlement agreement with Blue Wolf
Capital Management ("BWCM") where Johnnic acquired a 25% interest in the
carried interest of BWCM in the first two funds raised by BWCM. The interest
was acquired inter alia for providing a US$800 000 loan and assistance by HCI
directors in the fundraising efforts. Importantly Johnnic is not required to
invest in the two funds to obtain the interest. Under the previous agreement
Johnnic was required to invest up to R240 million in the first fund.
Johnnic will allocate to HCI, in exchange for the procurement of the loan
funding, serving on the investment committee and assistance in the
fundraising, 50% of the interest it acquired from BWCM.
Shareholders are referred to Johnnic`s results for its performance and
activities.
Financial services
Mettle Consolidated Investments (Pty) Limited ("Mettle") - 100% interest
Mettle`s traditional business delivered profit before tax of R15,5 million for
the period. Mettle`s new businesses excluding Mettle Motor Loans ("MML"), many
of which are still in the startup phase, performed satisfactorily with R14
million profit before tax for the six-month period. Mettle Factors,
predominantly active in the bridging finance market, was the main contributor
for the period.
Profits were negatively affected by continued losses of R21 million in MML as
a result of increased bad debt costs of R21 million. It is hoped that the loan
book will now stabilise but the general economic environment is cause for
concern. The management team now consists of experienced staff recruited from
the industry, the effects of which can already be seen in improved
collections and customer service. We remain committed to the business subject
to continuing funding support from our senior debt funder.
Transport
Golden Arrow Bus Services (Pty) Limited ("GABS") - 100% interest
GABS has performed in line with budget with the increased fuel prices placing
pressure on margins. Revenue growth is being constrained by infrastructural
capacity. The group has addressed this by bringing on line a further 50 buses
during the period under review. The group remains committed to providing an
efficient transport system to the people of Cape Town and will continue to
upgrade its fleet and facilities. On average a 6,8% fare increase is expected
to be implemented on 30 December 2007. The company continues to trade under an
interim contract.
Food and beverages
Clover Industries Limited ("Clover") - 44% economic interest
Pursuant to HCI`s rights in its share subscription agreement, the group
increased its interest in Clover`s ordinary shares to 34,9%. HCI currently
holds 44% of Clover`s preference shares.
Clover`s results for the year ended 30 June 2007, enhanced significantly
through once-off gains from the sale of the Ultramel business to Danone,
remain below expectations and those of Clover`s peer group. The sale to Danone
also resulted in Clover increasing its shareholding in Clover Beverages to
95%. An offer to acquire the remaining 5% was rejected by the minority
shareholders.
We hold the view that the current capital structure is a significant
constraint to the business and that a single capital structure is required to
free it from milk quotas. Through our board representation we have requested
that the board investigate the recapitalisation of the group but progress
remains extremely slow. Management has publicly indicated that additional
capital will, when deployed, generate significant returns for shareholders.
Equity-accounted profits for the period amounted to R83,9 million (R14,4
million in the prior year). After adjusting for the Ultramel Danone
transaction headline equity-accounted earnings from Clover amounted to R17,8
million.
Information technology
Syntell (Pty) Limited ("Syntell") - 50,01% interest
Syntell provides electronic monitoring of traffic and traffic violations to
municipalities throughout South Africa.
Syntell`s profit after tax for the period amounted to R17,3 million compared
to R9,8 million in the prior comparable period, an increase of 77%. As
anticipated the Johannesburg Metro contract has made a significant
contribution to the increased profits. The collection rate on issued
violations is a key driver of profitability and Syntell`s processing
efficiency and use of innovative technology has enabled the Metro to increase
the collection rate on outstanding violations from 28% to 50% over the first
12 months of the contract. This increase has been assisted by
www.payfine.co.za that is now the most successful website of it`s kind in
South Africa and collects over R10 million per month for Metros around the
country. Marketing is focused on demonstrating Sytnell`s superior technology
to other Metros and although the list of prospects is good, the sales process
continues to be very long. Syntell`s traffic management services were expanded
through the acquisition of Mikros, a business focused on the gathering of
traffic data for national, provincial as well as local government.
Industrial
The group`s share of profit before tax from the industrial assets declined by
R16,5 million from R29 million to R13,5 million mainly due to the disposal of
Johnson Crane Hire and Tylon. Following these disposals the group`s remaining
industrial assets comprise Johnson Access and Formex Industries.
Johnson Access is benefiting from the construction boom with revenue growing
by 39% when compared to the prior comparable period. The shortage of access
platforms internationally is however constraining growth.
Formex was negatively affected by the recent strike in the motor industry as
well as higher than expected costs in both the pulley and pressing business.
Management have indicated corrective actions should reduce costs to budgeted
levels for the next six months.
In line with Formex`s strategy to provide a wider array of products to its
client base, Formex completed the acquisition of Autotube Manufacturing
("ATM") for R65 million. ATM manufactures and manipulates tubes for the
catalytic industry.
HCI Khusela Coal - 80% interest
Plans to commence mining in the first half of 2008 at the Klippoortjie and
Loopspruit (now renamed Palesa Mine) mines are on track. To ensure that the
procurement and commissioning of the plants are managed in line with budgets
and time plans, the management team has been strengthened through the
recruitment of executives with industry experience.
The construction boom is placing pressure on the cost of plant but the current
quotes, whilst not final, are within business plan tolerances. Prior to
project finance debt, which should result in a return of funds to HCI, it is
expected that the group`s total investment will be approximately R180 million
for the two mines.
DISTRIBUTIONS TO SHAREHOLDERS
Your directors have decided not to declare any dividends at this interim
stage.
In line with HCI`s dividend policy, an annual dividend will be considered with
the publishing of the year-end results.
For and behalf of the board of directors
MJA Golding JA Copelyn
Chairman Chief Executive Officer
Cape Town 15 November 2007
Registered office
Block B, Longkloof Studios, Darters Road, Gardens, Cape Town, 8001
PO Box 5251, Cape Town, 8000
Transfer secretaries
Computershare Investor Services 2004 (Pty) Limited, 70 Marshall Street,
Johannesburg, 2001 PO Box 61051, Marshalltown
Directors
MA Golding (Chairman), JA Copelyn (Chief Executive Officer), VE Mphande,
A van der Veen, JG Ngcobo*, VM Engel*, MF Magugu*, AM Ntuli*, Y Shaik*,
JA Mabuza, ML Molefi* *(non-executive)
Company secretary
TG Govender
Sponsor: Investec Bank Limited
Date: 15/11/2007 11:30:01 Produced by the JSE SENS Department.
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